Vietnam growth outlook remains stable

(VOV) -Vietnam could see lower growth rates due to tighter US monetary policy and a slowdown in China's growth, but currency devaluation, robust consumption and government spending will help protect growth rates.

This was stated in the latest report from the Institute of Chartered Accountants in England and Wales (ICAEW).

The report provided its 140,000 members with a current snapshot of the region's economic performance and a quarterly review of Southeast Asian economies.

ICAEW economic advisor Charles Davis said both companies and individuals in Vietnam and the region have benefited from low interest rates, which have fuelled consumption and borrowing against future income. 

“We are likely to see this gradually change as the US economy recovers and the Fed looks for an exit strategy from its very loose monetary policy stance. Consumers, businesses and governments will all now have to adjust to a period where loan availability drops and where the cost of borrowing money increases. However, we believe that this will pick up again in 2015 as investor capital returns to seek advantage of opportunities for growth,” said Davis.

According to the report, annual growth in loans throughout the region is expected to fall from 2012 to 2015. 

Cheap money from the US Federal Reserve's exceptionally loose monetary policies has previously helped companies and governments to borrow easily, funding infrastructure and business projects, the report noted. This has also led to high inflation rates, property prices and impressive – though unsustainable – gains in local stock markets. 

The slowdown in capital inflow is acting as a serious pressure on regional markets. However, a return to the Asian financial crisis conditions, in which investors believe that ASEAN currencies will continue to depreciate more than previously anticipated, is not expected. 

Export-wise, China's slowdown will continue to affect the region, both because it is ASEAN's largest trading partner and because of the impact it has on commodity prices. Domestic as well as intra-ASEAN consumption remains an important driver for the region's economies. 

Mark Billington, regional director for ICAEW South East Asia, added his comments on the region's outlook. “Growth will stumble in 2013 but ASEAN economies will stay on their feet. In Vietnam, a firmer handle on inflation and a close watch on price growth should increase confidence within the economy. 

"The overall impact on lowering demand for exports should be mitigated by recent devaluation of the dong, while robust consumption and significant increases in government spending will help insulate growth rates from falling,” he said. 

“According to the Economic Insight report, GDP in Vietnam is expected to rise by 5% in 2013 and 2014, and as global demand improves further, greater demand for exports will push GDP growth up to 5.5% in 2015,” Billington added. 

The report also analyzed the impact on ASEAN from China's slowdown. ASEAN economies are closely integrated with China in the global value chain and the giant's slowdown will affect an already weak economy. 

It forecasts that the world's second-largest economy will grow by only 7.2% in 2013, and this will dampen the demand for ASEAN's commodities and other exports that are traditional drivers for growth in the region.

VNA/VOV online